"It seems like southern Illinois," said ACDI/VOCA Vice
President Fred Smith while surveying the rich black soil of Krasnodar,
Russia, in 1994. But he was surprised to learn that local farmers only
produced 50 bushels per hectare. Fertilizer, hybrid seed and the proper
equipment for weed control were available, and the local markets were
short on grain supply. "There was just no working capital in the
system--no way for farmers to finance improvements," Smith said.

Smith developed a plan for improving the availability of rural
credit in Russia. It took a while to implement, but more than a decade
later, the Mobilizing Agricultural Credit program, led by ACDI/VOCA, has
been called "one of the most successful programs in the
mission's portfolio," by Ray Lewman, deputy director of the
Office of Economic Growth for USAID/Moscow. The Russians' appetite
for a reliable farm credit system has been whetted.

Credit needed in rural Russia

Only 5 percent of the market for rural credit in Russia is
currently being served. The Russian Rural Credit Cooperation Development
Foundation (RCCDF), together with ACDI/VOCA, managed the groundbreaking
Russian-American Loan (RAL) Program that has helped to bring rural
credit to Russia.

The idea was hatched by Smith, a North Carolinan, who was
frustrated by the unfulfilled potential of rural Russia. It was
initially funded with loan capital from USDA and technical assistance
funds from USAID, first through the Mobilizing Agricultural Credit
project and now the Cooperative Development Program.

From a starting point of $6 million in USDA capitalization, the RAL
Program now has $10 million of equity and has successfully loaned more
than $38 million to rural credit cooperatives. About 91,000 people
belong to Russian rural credit co-ops, which provide the best--and often
the only--access to financing.

"While credit cooperatives improve access to credit for
farmers and rural entrepreneurs and are thus an important economic
development tool, they also facilitate grassroots improvements to local
civil society," says ACDI/VOCA's country representative,
Michael Harvey.

Credit cooperatives also have a national impact. Credit cooperative
leaders have become political leaders in Russia. At least one female
credit co-op leader has been elected to the State Duma, Russia's
parliament. In addition, staff of the RCCDF and Union of Rural Credit
Cooperatives have served as expert advisers in both the Duma and the
Federation Council.

Building a rural credit system

Given this history, ACDI/VOCA was the natural choice to organize a
recent U.S. fact-finding mission for some Russian farm and credit
leaders. Nine Russians, among them three republic ministers of
agriculture, looked intensively at the American model last November.

ACDI/VOCA President Carl Leonard welcomed the group to the
organization's headquarters in Washington, D.C., and Smith spoke of
the company's seminal work in Russia. The Russians got an overview
of the U.S. farm credit system from John O'Day, former vice
president of AgriBank, and a briefing on the federal government's
role in fostering cooperatives from USDA Rural Development economist
James Baarda.

The first day ended with a reception, at which Asif Chaudhry,
deputy administrator of USDA's Foreign Agricultural Service,
formally welcomed the group on behalf of the government. After dinner,
participants took a nighttime tour of the Lincoln Memorial.

The next day the group was off to the heartland. O'Day had
arranged meetings at AgriBank in St. Paul, Minn., the largest farm
credit bank in the nation, with a loan portfolio of $40 billion. The
Russians were addressed (in Russian) by a bank employee who had
emigrated to the United States at age 16. C.T. Fredrickson, former bank
president and former senior deputy governor of the Farm Credit
Administration, had a rapt audience when he spoke about the dire U.S.
farm credit crisis of the 1980s and the lessons it provided.

While the turmoil and dislocation suffered by many farm families
and farm credit professionals could not be ignored, Fredrickson said a
legislative remedy proved highly successful--no doubt an interesting
lesson for the Russians. He added, however, that there were dangers in
the government playing too prominent a role in such situations.
"Those engaged in businesses in which government policy is a large
factor in determining prices, profits and asset values should always
remember that the market forces cannot be suppressed by the government
indefinitely," Fredrickson said.

Other tour highlights included:

* Lee Egerstrom, business reporter for the St. Paul Pioneer Press,
presented the Russians with signed copies of two of his influential
books on cooperatives, including "Make No Small Plans," much
of which is applicable to Russia as it strives to build a stronger rural
credit system. Egerstrom stressed that a co-op has two main objectives:
to succeed as a business and to help its member-owners succeed in their
own businesses.

* John Schmitz and Tom Larson, CFO and executive vice president,
respectively, of CHS, the largest U.S. farmer co-op, also addressed the
group. Schmitz said that he saw great potential for Russian agriculture,
but that Soviet style co-ops, while able to perform certain governmental
functions, are poorly structured to succeed as businesses in the global
marketplace.

* Bob Doane, a regional manager of CoBank, provided an overview of
CoBank operations, while a representative of Farm Credit Leasing Co.
explained how it works with CoBank customers and others to determine if
it is advantageous to lease or buy equipment. Export financing is an
important part of CoBank's portfolio, and the bank has $2.3 billion
in lines of credit, including $158 million in Russia. Members of the
Russian delegation expressed interest in working with CoBank in
importing new and used farm equipment, fertilizer and Jersey cows.

* Upon their return to the Washington area, the Russians visited
the headquarters of the Farm Credit Administration (FCA) in McLean, Va.,
where they learned about its role as an independent regulatory agency in
governing the farm credit system, as well as the nuts and bolts of
rulemaking and the examination process. Several FCA officials have a
keen interest in global rural finance, including Roland Smith, secretary
to the FCA board, who has facilitated the short-term service of FCA
staff as ACDI/VOCA volunteers. Smith introduced one of them, Ron Boehr,
who has served on six assignments in Russia over 11 years.

* Gene Swackhamer, former president of the Farm Credit Bank of
Baltimore, sketched a history in which farm credit authority migrated
from the U.S. Treasury Department to USDA, and then from the FCA to the
banks themselves and, more recently, to associations.

* The Russians traveled to the Maryland Eastern Shore to tour the
65-head St. Brigid's Dairy Farm in Kennedyville and some local
grain and chicken farms.

* A briefing was held at the Farm Credit Council, the U.S. farm
credit system's advocate in Washington. Terry Barr, economist for
the National Council of Farmer Cooperatives, discussed the economics of
world agricultural trade and the issues of the Doha round of trade
talks.

Wind-up on Capitol Hill

The last working day of the tour was spent on Capitol Hill, meeting
with officials of the 5.7-million-member American Farm Bureau and staff
of the Senate Agriculture Committee who explained the mechanics of the
Farm Bill. The Russians were interested to hear that the House
Agriculture Committee alone employs 48 full-time professional staff
members. A tour of the Capitol was provided by Senator Norm Coleman of
Minnesota.

During lunch at the Monocle Restaurant (considered a Hill
institution) the group met with Senator Richard Lugar of Indiana, who at
the time chaired the Senate Committee on Foreign Relations and who
formerly chaired the Senate Agriculture Committee. Senator Lugar, who
visits Russia at least once a year, listened intently as the visitors
described objectives of the mission and of the progress being made in
Russian agriculture.

As a result of the tour, strong relationships have been established
with ministers from key areas of Russia's North Caucasus region and
they have found new contacts within the cooperative credit system.

Exporting the U.S. cooperative model

ACDI/VOCA was founded by U.S. cooperatives to bring the advantages
of the co-op model overseas. True to its roots, the development
organization invokes a great cooperative system that has served this
country's farmers and business owners for decades and that now
extends to the productive soil of Russia.

Without the support and involvement of the U.S. farm credit and
cooperative community, the current

Russian system would not exist and the recent fact-finding tour
could not have been made. Principles of cooperation soundly trump
concerns about competition or lingering cold war issues.

For 43 years and in 145 countries, ACDI/VOCA has empowered people
in developing and transitional nations to succeed in the global economy.
It delivers technical and management assistance in agribusiness systems,
financial services, enterprise development and community development in
order to promote broad-based economic growth and vibrant civil society.
ACDI/VOCA currently has approximately 90 projects in 40 countries and
revenues of approximately $85 million.

By Perry Letson, Vice President for

Communications

ACDINOCA

COPYRIGHT 2007 U.S. Department of Agriculture, Rural Business - Cooperative Service
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